Published by MBA Skool Team, Last Updated: December 17, 2015
What is Turnkey Business?
Turnkey Business is a term given to a situation in which the top management of the firm plans and executes all the business strategies and policies that result in profiting of the company and that outside individuals will buy the franchise or the business and start or ‘turn the key’ to begin the operations for the main company. A turnkey business primarily requires initial investment and labor. It already has a proven, successful business model.
Franchises are typically turnkey business, but any existing business that's already up and running successfully or a new business whose doors are ready to be opened could be considered a turnkey business.
Example: Subway's sandwich shops are turnkey businesses. The menu has already been developed, the stores have already been designed, the employees' uniforms have already been chosen, marketing is already in place and consumers are already familiar with the brand. To open a new Subway franchise, an individual only needs to pay startup and operating costs for one store location, a franchise fee and ongoing royalty fees; he or she does not have to worry about the other major aspects of business development.
A turnkey business has one point of authority. He/she takes all the responsibility for its success or failure. So it is a high risk high return position.
A turnkey business is a business that includes everything you need to immediately start running the business, as opposed to having an idea for a product or service and developing a business from scratch.
In a turnkey business a successful business model is already in place and the products or services have been defined and proven so the startup phase is complete. The phrase "turnkey" is meant to imply that little work is required by the buyer other than opening the door to customers.
Advantages of a Turnkey Business:
The greatest point of preference to purchasing a turnkey business is that the plan of action has as of now been demonstrated so the majority of the danger and vulnerability is disposed of. Set up business or establishments have a much lower disappointment rate than free new companies. The purchaser does not have to stress over whether the item or administration will offer or not; he/she can concentrate on maintaining the business. Frequently the offices, gear, and (on account of a free business) the workers are incorporated into the deal, making the takeover process significantly more straightforward.
On account of establishments, for example, Tim Horton's, for instance, everything from the eatery area to the menu is predefined for the purchaser. Consequently the purchaser pays startup charges, establishment expenses, and must buy supplies and hardware from Tim Horton's. The organization gives preparing, national promoting, and help with administration
Disadvantages of a Turnkey Business:
Purchasing a set up business or establishment requires a considerable speculation. For an establishment, for example, Tim Horton's, for instance, you must have $1.5 million in total assets and $500,000 in unhampered capital. The establishment charge for a 20-year Establishment Understanding is $50,000. Establishment organizations are ordinarily extremely prohibitive - the proprietor has a great deal less control on how the business is overseen and worked versus an autonomous business. (See If You Purchase an Establishment?) For occurrence, the contractual prerequisite to buy gear and supplies from head office implies you can't acquire these things from less costly sources.
Business people considering purchasing an establishment business ought to dependably do their due determination and make certain they know precisely what a specific turnkey operation incorporates; not all establishment organizations are made equivalent, and to confuse things significantly more, establishment enactment varies from spot to put in the event that it exists by any means. (Why B.C. is the Best Place in Canada to Offer or Purchase an Establishment gives a diagram of establishment law in Canada). Acquiring a current autonomous business likewise requires cautious examination. It is imperative to discover why the business is available to be purchased - the organization may have as of late lost a substantial contract, have an immense expense obligation, or generally be in decay because of rivalry or different elements.
Appropriate business valuation can be troublesome for the purchaser of an autonomous business. A business that is being sold as a turnkey business typically incorporates tangibles, for example, stock and hardware through intangibles, for example, a formerly settled notoriety and goodwill. Unmistakable resources are ordinarily easy to esteem yet intangibles can exceptionally troublesome.
Hence, this concludes the definition of Turnkey Business along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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